Diversity is having a moment in the vast asset management industry, as an increasing number of allocators acknowledge that they are working with too few Black, Latino and women managers.
Yale endowment CIO David Swensen recently made an important move, informing the school's 70 asset management firms that they would be assessed on their efforts to bolster diversity. And, despite years of endowments refusing to share diversity figures, Congress recently got 24 of the 25 largest endowments to provide details about the diversity of their endowment managers.
Institutional investors' charge is to maximize returns through performance. Studies show, and experience bears out, that failing to robustly work with people of color costs returns.
Yet, diversity in the industry is sorely lacking. A recent study from the organization I lead, the Diverse Asset Management Initiative, showed that plainly. We requested diversity data from 30 of the top investment consultant firms in the country. Among those that responded, respondents' staff were 73% white and firm owners were 80% white.
In asset management, we need experienced Black and Latin asset managers to be given business concomitant with their talent, which is proven. We need high performers to manage a lot of assets. That's all we need. Everything else is whitewash.
Here's what leaders need to be doing:
First, institutional investors should track and report their diversity numbers. Transparency is crucial to create change. There's no reason for anyone to hide whether they are seriously working with Black people. Most firms already report to the Equal Employment Opportunity Commission, to pension funds that require reporting, or other clients, so they have the numbers.
Second, cease talking about improving diversity as a civil rights issue. Too many allocators do so.
Studies show that people don't work with even high-performing Black and Latin asset managers with multiple funds under their belts — either because CIOs and investment consulting firms won't include them in their due diligence network, or when they do, they have a more skeptical standard of the minority managers' success.
The previously intractable problem is racial and gender bias. Too many white people simply do not believe that people of color can do this work well. Or, if they do, the person of color is unique. By talking about the inclusion of high-performing managers as a civil rights issue, the unstated bias actually gets reinforced: "Minority managers probably won't perform as well, but we can't keep excluding them."
Third, it's a ruse that we need a stronger pipeline of diverse managers to bolster representation. We don't have a supply problem for asset managers of color; we have a demand problem. We have Black and Latino seasoned professionals with multiple funds under their belts and strong returns — the question is why aren't they being used by these elite institutions.
Major allocators travel to Hong Kong and Singapore to find talent, but not Baltimore, where Eddie Brown's firm, Brown Capital Management, has been overperforming for decades. That's just one example.
The insistence that we have a pipeline problem distracts people from the current issue: High-performing women and people of color don't get considered. And, if they do, they get treated as emerging no matter their size. They also get scrutinized and vetted more skeptically.
I'm all about the kids. Absolutely let's get the kids into the system. But talking about the kids so you don't have to talk about the adults is sad.
Lastly, ownership matters. Many firms will ensure diversity at lower staff levels, but not at the top. It's crucial that people of color and women are represented within the ownership of the firm.
Unfortunately, some allocators dismiss the importance of ownership, claiming it can be manipulated or gamed. Of course, there can be flawed ways to get to the top. But that doesn't mean that ownership can be dismissed outright.
Next time you stroll by the Stephen A. Schwarzman New York Public Library, tell a Black asset manager that ownership — the pinnacle of wealth accumulation and philanthropy in the U.S. — doesn't matter. See what the future residents of the Mellody Hobson College at Princeton think about a Black woman owner of a firm.
The corollary condescension is the persistent trope that Black and Latin firms should be capped at a certain amount. In fact, many minority asset managers we work with have been told by white investment consulting firms or CIOs at allocators that they are large enough, or even if they manage $15 billion, a $500 million allocation might be too much.
The movement in the asset management industry is encouraging. But motive and language are crucial in diversifying. Look what the right did to affirmative action on college campuses. They will do that in asset management diversification if the same dog-whistle tropes and reasoning are used.
The University of California seems to be getting this right. They set the gold standard for reporting and commitment. They focus on performance, and how they will improve returns by working with people of color. For great advice about how to do this right, talk to their staff, which is well along this learning curve.
As the field progresses, step outside of your circle of similar actors, or people with vested and conflicted interests in the outcome, and make sure you are getting guidance from people who do diversity and inclusion for a living.
Robert Raben is the founder of the Washington-based Diverse Asset Managers Initiative, an effort to increase the absolute number of, and assets under management by, diverse-owned asset management firms for institutional investors. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.